Selection of FDI capital – a thorny problem
(VOV) -Vice President of the Vietnam Association of Foreign-Invested Enterprises, Nguyen Van Toan, said what remains an open question is why more investment has not come from advanced nations such the US and EU member states.
As he put it the problem does not totally lie in the attraction of FDI inflows. In general, Vietnam is still an attractive destination for foreign investors who wish to make quick profits from the use of a cheap labour force and preferential treatment procedures, according to which they are not committed to technology transfer to help Vietnam get involved in global supply chains.
A recent study from the Vietnam Chamber of Commerce and Industry noted that enterprises funded by FDI in Vietnam are operating on a relatively small scale (only five percent of them in the modern technology sector which require high skills).
Other figures released by the Foreign Investment Agency under the Ministry of Planning and Investment showed the FDI sector made up around 20 percent of GDP, equivalent to roughly 26 percent of total investment and contributing about 10 percent to the State budget.
The Prime Minister recently approved a project on improving the efficiency of managing FDI capital. Based on targets set by the State the project covers three key areas- optimisation of legal frameworks, synchronisation of data bases with a new system of reporting statistics of FDI inflows and reinforcement of inspections and coordination among relevant agencies. The main focus is on how to manage FDI inflows effectively through strict inspection, examination and supervision by all relevant agencies.
Under the project, the Ministry of Planning and Investment will co-ordinate with other ministries to perfect the legal framework for inspection and supervision of FDI inflows into Vietnam to ensure that major projects can get off the ground on schedule.
However, selecting suitable specific FDI projects is no easy task for local authorities.
At a recent conference on attracting foreign investment, Minister of Planning and Investment Bui Quang Vinh said they are weak at analyzing the pros and cons of FDI inflows despite the Foreign Investment Agency’s regular release of latest information in this connection.
25 years ago, when Vietnam began to open its doors to foreign investors, it faced a seriously shortage of capital but at the time, there was still standardised criteria in place to select FDI projects. Now not a few localities are just after achievement in the competitive capacity index and care little about the quality of FDI projects.
In fact, the FDI sector has contributed considerably to the country’s socio-economic development in recent years. From 2001 to 2011, through various types of fees and taxes, it contributed more than US$15.5 billion to the state budget and made up 20 percent of total GDP. From 2000 to 2010, it generated more than 1 million jobs. But the sector has also left behind some negative effects on the environment.
Companies like Vedan, Tung Kuang and PangRim Neotex, for instance, have been caught discharging waste into the surrounding areas as FDI-funded businesses imported obsolete production facilities, turning Vietnam into a dumping ground for unwanted equipment from foreign countries.
Minister Vinh affirmed that only projects on hi-tech and support industries receive preferential treatment.